If you and your family own valuable and important assets, such as real estate or businesses, you may worry about what could happen to your wealth if debts or other financial issues become a problem. However, you can act before problems arise to protect your or your family’s wealth through asset protection planning. The law offers various tools that can help create a comprehensive asset protection strategy. As a result, developing an effective strategy can require knowledgeable legal advice and assistance.
Texas’s Legal Protections
Texas law offers several useful asset protection strategies that residents may incorporate into their estate plan to protect their wealth, such as:
- Homestead exemption: Texas’s homestead exemption can preclude most creditors from forcing the sale of a primary residence to satisfy debts.
- Retirement account exemption: Texas also fully shields qualified retirement accounts from creditors in bankruptcy.
- Personal property exemption: Texas law also protects eligible personal property from garnishment, attachment, or seizure.
Entity-Based Protections
Individuals and families may use legal structures such as corporations, limited liability companies, and family limited partnerships to protect important family assets, including real estate and businesses. Because legal entities have a separate existence from their owners, they can shield family wealth from family members’ individual debts or liabilities. Certain types of legal entities can also facilitate transfers of wealth or business ownership interests.
Irrevocable Trusts
An irrevocable trust can also provide a robust tool for asset protection in Texas. Irrevocable trusts do not permit the creator of the trust to change its terms or beneficiaries. As a result, a person who creates an irrevocable trust cannot recover assets they place in the trust. However, because an irrevocable trust means giving up control over an asset, a person can protect wealth from creditors and many other financial liabilities.
Medicaid Planning
Asset protection planning may also take the form of Medicaid planning. Medicaid planning can protect an individual’s or a couple’s assets if they need long-term care and want to apply for Medicaid benefits to afford that care, rather than spending their life savings. Medicaid planning requires early action, as the Medicaid program applies a five-year “lookback” rule that counts various assets transferred in the five years before applying for Medicaid.
Medicaid planning may also leverage legal strategies to protect certain assets from Medicaid estate recovery, which allows Texas’s Medicaid program to seek reimbursement of benefits from a Medicaid recipient’s estate after their death. For example, Texas recognizes Lady Bird deeds, which can protect a person’s residence from probate, Medicaid estate recovery, or beneficiaries’ personal liabilities. A Lady Bird deed automatically transfers a property to a named recipient after the owner’s death. The owner retains a life estate and continues to control the property during their lifetime.
Potential Asset Protection Pitfalls
Trying to engage in asset protection planning after problems arise can lead to serious mistakes that can affect the validity of a legal strategy. Asset-planning transactions undertaken in response to existing or likely liabilities could expose an individual to claims of fraudulent transfers. A fraudulent transfer is a transaction undertaken to defraud creditors or otherwise avoid liability. Courts have authority to unwind fraudulent transfers, impose a constructive trust on fraudulently transferred assets, or enter judgments for financial losses resulting from such transfers. These pitfalls make it essential to undertake asset protection planning as early as possible.
The Importance of Working with Legal Counsel
Because improper asset protection planning could leave your wealth exposed to creditors or other financial pitfalls, or may subject you to liability for fraudulent transfers, you should work with experienced legal counsel. An estate planning attorney can ensure the legality of your chosen asset protection strategies and help you select legal tools tailored to your specific financial objectives and personal circumstances.
Contact Carroll Law Group, PLLC today for a free consultation with a knowledgeable Texas estate planning attorney to discuss why you should undertake asset protection planning to protect your assets and your family’s wealth before legal or financial issues may arise.